Inflation could see Ireland regain its reputation as being a Rip-Off Republic, a Government minister has warned.

The cost of living is now galloping ahead of the housing crisis as the biggest threat the Government is facing, according to senior political figures.

But despite rocketing prices, Taoiseach Micheál Martin confirmed on Sunday that the planned carbon tax rise will go ahead in May.

He conceded soaring inflation will continue for the "medium-term" and acknowledged that "people are suffering", but said that the Government would move this week to help those worst affected.

But Finance Minister Paschal Donohoe this week also ruled out cutting VAT on energy to deal with the spike in fuel prices.

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A senior minister warned: "The last thing we need is a return to the days of Rip Off Republic and [financial adviser] Eddie Hobbs."

The minister was making reference to price inflation at the height of the Celtic Tiger which sparked a public revolt and a 2005 TV series called Rip Off Republic, hosted by Mr Hobbs.

Mr Hobbs told the Mail yesterday that the world's central banks did not see the inflation surge coming.

"They completely miscalled inflation. They said it wouldn't go above 2%, and then it wouldn't go above 3% and it kept going and going, and by the end of the year it was 7% in the States and nearly 6% in Ireland, when you take the European measure," he said.

"They've been telling us this is largely the result of bottlenecks and base effects. What I've been saying to that is, 'Rubbish'! Nobody is talking about the massive increase in money printing that has accompanied lockdown. It is absolutely massive, it's huge, somewhere between €25trillion and €30trillion.

"I have always thought it was inevitably going to end in an era of persistent high inflation. So now that it is happening, it comes as no surprise."

Within the Coalition, concern is growing, especially in Fine Gael, that economists and the Central Banks have been too slow to recognise that inflation is "here to stay" for the foreseeable future.

The soaring cost of living was predicted by Tánaiste Leo Varadkar last March when he warned at the height of the pandemic that the State was due a period of price inflation and that this could affect interest rates.

But the Central Bank and the Department of Finance have so far taken a more sanguine view, believing the current inflationary spiral is a post-pandemic blip.

Finance Minister Paschal Donohoe is also optimistic, saying last week in a Labour Party motion on the cost of living that the rate is expected to ease.

Mr Donohoe said: "In its Economic and Fiscal Outlook, published alongside Budget 2022, my department forecast a headline inflation rate of 2.25% both for this year and for next.

"The recent rise in wholesale energy prices means there is likely to be some upside to the projection for next year. Nevertheless, the baseline projection that the rate of inflation eases over the course of next year remains valid. While persistently higher inflation cannot be ruled out, this is not the central assumption.'

By contrast, senior Fine Gael figures believe inflation is not a temporary phenomenon but that it will moderate and higher inflation could be with us for years to come - not just in Ireland but globally, they believe.

One minister predicted: "The blunt reality is we are definitely going to have inflation of between 5% and 6% for some time."

Both the Taoiseach and the Public Expenditure Minister, Michael McGrath, have ruled out an emergency mini-budget.

Speaking on RTÉ radio, Mr Martin echoed the pledge of his Public Expenditure minister a day earlier when he said there was "not going to be a mini-budget".

He conceded that "people are feeling the brunt of this inflationary cycle" and said the Government "will be looking at a range of charges that impact on people, with a particular focus on protecting those on low incomes".

The Taoiseach said that there will be no increase in the base rate of social welfare but that other mechanisms would be considered, such as fuel allowance.

"We did increase the fuel allowance in the Budget, and eligibility for the fuel allowance, and brought in targeted social welfare measures," Mr Martin said.

The Government understands "people are suffering", he said, adding that he hopes by the end of the week, they can announce these proposals.

But Mr Martin confirmed the next round of carbon tax increases would go ahead in May.

In a strong defence of the unpopular tax, he noted: "That is 2.5 cents of an increase. The overall increase is 32.5 cents."

On climate change he said: "We need to avoid short-termism in climate change policy. We cannot keep postponing and postponing measures that are necessary for climate change. We can't let that go off the agenda."

But in an indication of the difficulties the Government will face over inflation, another minister warned: "The biggest inflationary cost is not fuel, it is shipping cost inflation.

"The cost of shipping goods to Ireland has doubled. That is a cost that will have to be passed on. All of these things we import, from furniture to flour to garden toys, will increase in cost and there is not a thing the Government can do about it. That level of inflation will wipe out any bit of good the ESB credit might achieve."

They also warned that inflation will increase the pressure on carbon taxes.

"Carbon tax is an idea that belongs to a low-inflation era. Inflation does what carbon tax is supposed to do. Carbon tax adds five cents to a litre of petrol or diesel. Inflation adds 35 cents.

"The fuss about carbon tax will look like a garden picnic compared to what is coming."

Images: Getty Images, Photocall Ireland & RTE